If you’re expecting in 2017 there are probably a million things on your mind and your baby’s financial future most likely isn’t number one.
Even so, it’s good to make some time to think about what sort of savings plan you want to put in place for your baby to help them along when they reach adulthood.
As an investment in Australia’s future Westpac, Australia’s oldest bank, is celebrating 200 years in business by offering a $200 savings bonus for each child born in 2017.
For children whose parent’s apply for the scheme, the bonus will be paid in to a Westpac Savings Account and will remain there accruing interest until the child turns 16.
If you add to the balance over time your child will be able to experience the full power of compounding interest come their 16th birthday.
To see what this could look like you can use a compounding interest calculator to predict how your child’s savings could grow and how your own additions could compliment them.
It’s also worth remembering that even though we are currently in a low interest rate environment, it won’t last forever. Depending on how the official cash rate moves over the 16-year period before the cash is accessible, and how much extra you contribute, your child could end up earning thousands in interest.
Here are some first steps to figuring out how you want to approach your baby’s financial future.
Set up a savings account
It could be the Westpac Bump account or any other savings account of your choice, but having somewhere to stash the money you’re putting away for your baby should be the first step. Having it in a designated savings account also means that it will be earning interest along the way.
Many banks offer special kid’s bank accounts often with some of the highest interest rates on the market, subject to certain conditions. It is worth doing some research into who has the best rates on the market and what you have to do to earn them. This could be depositing a certain amount per month or making limited withdrawals or a combination of both.
Decide what contributions you will make
Once you have the account set up and ready to go, it’s time to decide what sort of contributions you want to make over the years. Would you prefer to make a regular monthly commitment or deposit lump sums when you come into extra cash? Or, would you rather not make any contributions of your own and instead only deposit gifts given to your child into the account.
This is entirely a personal choice and there are many different ways to approach the matter. Some parents might prefer to institute a pocket money scheme when their child is old enough and deposit some of that cash into the account as a way of instilling an important financial lesson – that money doesn’t come for free.
Decide what you will do with baby’s gift money
Over the coming years your family and friends are going to want to shower your child with cash for the special occasions like birthdays and Christmas. Until your child is old enough to realise what’s going on, the best place for that cash is probably earning interest in their designated savings account.
Once they are old enough to realise what money is (and the potential it has to buy new toys) you might have to rethink this approach. Depending on how you decide to play it, you could work out a percentage of each gift amount that goes towards saving with the remaining part being used to purchase a treat. This is another great way to instil a financial lesson – that you shouldn’t spend everything at once.